How Connectivity Service Providers can Maxmize Value of Non-Connectivity Assets

Many CxOs tout the degree to which their revenue sources are broadening to include products from other segments of the internet value chain other than “connectivity.” But few tier-one service providers generate more than 20 percent to 30 percent of total revenues from non-connectivity sources. 

Jio stands as an exception, at least in part because the parent company (Reliance) always has operated as a conglomerate. By some accounts, though connectivity services are a major contributor to overall Jio revenues, non-connectivity services also part of the conglomerate make significant contributions as well. 

Some will note that these other businesses run separately from Jio’s mobile operations. 

Revenue Source	Total Revenue (in INR crores)	Percentage of Total Jio Revenue
JioMart	12,600	22%
JioSaavn	10,000	17%
JioMoney	5,000	9%
JioSecurity	2,000	3%
JioHealth	1,000	2%
JioCloud	1,000	2%
Others	2,000	3%
Total	33,600	57%

Still, mobile operations generate 78 percent of Reliance Industries revenue, while non-connectivity services generate about 26 percent of total revenue, if one does not count security or health services as “connectivity” services. 

Source	Revenue (in INR crores)	Percentage of Total Reliance Industries Revenue
Jio Mobile	44,700	78%
JioMart	6,000	10%
JioSaavn	4,000	7%
JioMoney	2,000	3%
JioSecurity	1,000	2%
JioHealth	1,000	2%
JioFiber	1,000	2%
Others	1,000	2%
Total	57,200	100%

And even estimates of non-telco revenue can change quickly, as for example when AT&T divested its content, linear video and advertising operations. AT&T's latest quarterly report focuses strictly on connectivity service revenue and operations. In a short year or two period, AT&T can be said to have scaled its “non-telco” revenue back from 19 percent to near zero.  

Company	Percentage of Non-Telco Revenue	Examples of Non-Telco Products
Vodafone	18%	Mobile payments, e-commerce, cloud computing, advertising
Jio	30%	Home broadband, DTH, fiber-to-the-home, smart home solutions
Telecom Malaysia	12%	Fixed-line broadband, data center services, cloud computing
Deutsche Telekom	15%	Mobile payments, e-commerce, cloud computing, advertising
BT	10%	Fixed-line broadband, data center services, cloud computing
Orange	14%	Mobile payments, e-commerce, cloud computing, advertising
KPN	11%	Fixed-line broadband, data center services, cloud computing
Telefonica	13%	Mobile payments, e-commerce, cloud computing, advertising
NTT	17%	Mobile payments, e-commerce, cloud computing, advertising
China Mobile	20%	Mobile payments, e-commerce, cloud computing, advertising
China Telecom	18%	Mobile payments, e-commerce, cloud computing, advertising
Verizon	16%	Mobile payments, e-commerce, cloud computing, advertising
AT&T	19%	Mobile payments, e-commerce, cloud computing, advertising

The point is that common citations of “non-telco” revenue tend to be inflated. 

Even when such non-connectivity services attain greater scale, it often will make sense to spin them out or otherwise monetize the assets in a “pure play” format, as this will tend to earn a valuation typical of that industry segment and firm type, compared to the valuation of “telco,” “mobile service provider” or connectivity provider valuations. 

That has been the pattern for cell tower assets, most data center assets and is starting to become a possibility for terrestrial access network assets as well. 

The implications for business strategy might be that, over the longer term, the core connectivity business is not likely to change all that much, in terms of revenue growth or valuation potential. 

What might be the optimal pattern is for connectivity provider lines of business to be structured in such a way that they are portfolio assets that can eventually be sold and monetized, presumably at higher valuations than would be possible if those assets were buried inside a connectivity organization.